July 29, 1998* CPT comments to USTR on FTAA provisions regarding intellectual property and health care.
Consumer Project on Technology
P.O. Box 19367, Washington, DC 20036
202.387.8030; fax 202.234.5176

July 29, 1998

Frederick L. Montgomery, Chairman
Gloria Blue, Executive Secretary
Trade Policy Staff Committee
Office of the U.S. Trade Representative
Room 501, 600 17th
Street, NW, Washington, D.C., 20508

Dear Sir and Madam:


We are writing to provide comments to USTR on the proposed Free Trade Area for the Americas (FTAA). CPT has been involved in FTAA discussions since 1997, when CPT participated in the FTAA Business Forum held in Belo Horizonte, Brazil. CPT, together with other groups, filed position papers on health care and information technologies for the 1998 FTAA Business Forum that was held in San Jose, Costa Rica. Before discussing substantive matters, we would like to address a few process issues. These will be followed by substantive comments on intellectual property provisions of the FTAA as they relate to health care. We are also sending under separate cover a second set of comments on intellectual property and information policy, which is signed by groups representing citizen, consumer, and author interests.

Process Issues

The Federal Register notice indicated that:

Since the Santiago Summit, USTR has held informal consultations with various sectors of civil society, including consumer, labor, business and environmental interests, which have expressed views and an interest in commenting on U.S. positions and objectives for the nine negotiating groups.

First, we would like to know with which "consumer" interests the USTR has held informal consultations. Over the past year, the USTR has repeatedly refused to meet with CPT on issues concerning intellectual property and trade matters. In May 1998 CPT and six other consumer and public health organization sponsored a workshop on trade agreements, health care and intellectual property, and the USTR refused to participate. If there are consultations with consumer groups over the FTAA negotiations, we would like to know more about them.

Secondly, at the 1998 Costa Rica Business Forum, the U.S. Department of Commerce told CPT that the meetings were open to anyone. However, upon arrival in San Jose, while we were free to attend the sessions, we were told we did not have the right to speak, because we represented consumer rather than commercial interests. We asked to see the rules that would prevent us from speaking on the various proposals that were voted on, but were never providing anything in writing. I also contacted the U.S. embassy in San Jose and asked if there were any briefings for U.S. citizens on the negotiations, and was told there were none, but I found out later this was not true. We asked the U.S. Department of Commerce if any U.S. government funds were spent on the FTAA Business Forum, and never received an answer. It would be helpful to know how the FTAA Business Forum is related to the official negotiations, and what restrictions there are on consumer groups participating in these discussions. If indeed consumer interests are specifically excluded from participation in the FTAA Business Forum, why should it have any elevated status in the development of a treaty that is supposed to benefit consumers?

We would also appreciate more information on what if anything is actually happening concerning input from non-commercial interests. Also, we suggest the USTR adjust its internal procedures to insure that its policies reflect greater input from public interest groups, and rely less on special pleadings from a handful of narrow commercial interests. For example, the membership of IFAC-3 and other advisory boards should be changed to include consumer representation, and USTR officials should not boycott meetings with consumer groups.

Health Care and Intellectual Property Rules

The most important starting point for intellectual property and trade disputes as they relate to health care is to establish that these disputes be evaluated on the basis of public health concerns. We strongly support the proposed resolution to the World Health Assembly (WHA), that member countries:

ensure that public health rather than commercial interests have primacy in pharmaceutical and health policies and to review their options under the Agreement on Trade Related Aspects of Intellectual Property Rights to safeguard access to essential drugs

The U.S. should explicitly endorse this approach, and ask that a similar provision be included in the FTAA. To illustrate areas where it is important to clarify the primacy of public health considerations, I am attaching a copy of a May 12, 1998 letter to James McGlinchey in the Office of Intellectual Property and Competition, United States Department of State ( http://www.cptech.org/pharm/jm-may12.html). As indicated in this letter, there are many disputes concerning trademarks where various industry groups have challenged sound public health measures on the grounds that public health measures violate trademark rights under the TRIPS or NAFTA. These involve such disputes as plain paper packaging of cigarettes and infant formula and generic drug substitution, for example, where public health concerns are in direct conflict with commercial interests.

One also expects to see a number of disputes over compulsory licensing of biotechnology inventions. In this regard, the USTR staff is asked to read the 1996 FTC report, Anticipating the 21st Century: Competition Policy in the New High-Tech, Global Marketplace, and the sections on intellectual property, to better appreciate the dangers of overbroad and anticompetitive uses of intellectual property. It is essential that the FTAA include provisions that specifically say that countries should avoid "overbroad patents and other rights that discourage innovation and lead to antitcompetitive practices," a position that CPT and Health Action International (HAI) proposed, without success, to the 1998 FTAA Business Forum.

Policies which concern competition and generic drugs

The United States has been a leader in the development of the generic drug industry. The United States army used procurement policy to promote generic competition. The U.S. FDA developed efficient mechanisms for generic drug approval, state governments have enacted legislation to promote generic drug substitution and health maintenance organizations and private insurers aggressively promote competition between generics. These policies were implemented in the United States to benefit consumers and taxpayers, by making our health care system more affordable.

There are several areas where regulatory policies can create barriers to entry by generic drugs. These should be discouraged by the FTAA.

  1. "Unfair competition" rules for Health Registration data should not lead to excessive periods of exclusivity.

    In the United States, the period of exclusivity for health registration data is 5 years. In the European Community the period is generally 6 to 10 years. However, the EC adopted the longer terms to compensate for the fact that some members, such as Spain and Portugal, did not have patents on pharmaceutical products. However, now that the GATT/TRIPS provisions require WTO member countries to provide 20 year patents on pharmaceutical products, the original rationale for the longer term has disappeared. DG3 officials concede that it would be appropriate to revisit this issue, in light on the changes in member country patent laws.

    CPT believes the current 5-year period of data exclusivity in the Hatch/Waxman act is excessive. One good example of this is Taxol, a cancer drug invented and developed by the U.S. Government. Competition for Taxol has been restricted because Bristol-Myers Squibb (BMS) holds exclusive rights to use the U.S. government test data for drug approval. BMS's role in the development of Taxol was minimal. The U.S. government invented Taxol, the methods of manufacturing Taxol, and sponsored all of the clinical trials that were used for the FDA approval in 1992. Bristol- Myers Squibb's sales for Taxol are now about $1 billion per year. In our opinion, the 5-year exclusivity has been excessive, and has cost cancer patents dearly.

    In 1997 Bristol-Myers Squibb sought legislative extension of the 5 year period, in return for an agreement to give the U.S. government 3 percent of the net proceeds from Taxol sales, and to spend another 3 percent on research. (See: http://www.cptech.org/pharm/senhregd.html) During the debate on this provision and similar efforts by BMS to extend its Taxol monopoly, N.E.R.A. published a report that said that a two-year extension of the FDA market exclusivity for Taxol health registration data would cost Taxol consumers $1.27 billion. (See Richard P. Rozek, Costs to the U.S. Health Care System of Extending Marketing Exclusivity for Taxol, N.E.R.A., Washington, DC, March 1997.) Congress rejected the statutory extension of the period of exclusivity.

    In our view, the current U.S. and EC systems to protect health registration data from unfair competition are badly flawed, because they are not related to the company's investment, which is the basis for the protection in the first place. Here it is important to point out that firms do not need "unfair competition" protections if they can obtain patents for inventions. Health registration data is only an important issue when the firm is not an inventor under patent laws. These are basically "sweat of the brow" protection regimes designed to protect investment, not genius. It is inappropriate to provide genius type protections when the government is actually protecting investment. A more appropriate system is one that is based upon investment, and which provides compulsory licensing based upon (risk adjusted) cost sharing, in order to avoid abuses. We have developed specific proposals for doing this which we believe are more appropriate for international norms than are the current U.S. or EC methods of protection.

  2. Countries should be permitted flexibility in writing their own Bolar Provisions.

    We strongly oppose the efforts by the pharmaceutical and biotechnology industry to narrow or repeal so called "Bolar" provisions in patent laws. The WTO/GATT/TRIPS provisions for 20-year patents provide inventors with adequate incentives. This is particularly true in pharmaceuticals, as the effective patent term has gotten longer in recent years. However, companies that have older patents hope to extend the effective life of the patent by preventing firms from doing tests on pharmaceuticals in order to have timely registration at the time of patent expiration. This is a back door way to seek patent extensions. The U.S. Congress rightly provided specific provisions in our laws that permit such testing during the patent term. All that countries should be required to do is to limit the commercial sale of an invention without a license. There should be no limits on the use of patented products in medical research. We also believe it is appropriate for firms to engage in the manufacture and storage of goods in anticipation of patent expiration, including export markets, so long as the good is not actually sold in a market prior to patent expiration, in that market.

  3. Countries should be permitted to exclude patents for treatment regimes and doses of medication, and there should be limits on trademark protection for "trade dress" of pharmaceuticals, for public health reasons.

    The U.S. Congress recently determined that patents on surgical procedures cannot be enforced. We believe this should be extended to treatment regimes for pharmaceuticals, and that patents on doses of medicines should be avoided, and trademarked protection for the "trade dress" of pharmaceuticals should be limited.

    One basic problem for generic drugs is that patients get confused when they switch from a branded to a generic drug, when the color and shape of the pill has changed, and the doses are arbitrarily different. This leads to mistakes in the use of the products, which harms the patient.

  4. It should be clear that countries can require generic drug substitution, subscribing by generic name, or the printing of the generic name on the packaging of the product.

    The PhRMA members have argued in several international forums that various methods of generic drug substitution, subscribing by generic name or the printing of the generic name on the packaging of the product violate NAFTA or GATT/TRIPS provisions on trademarks. It is important that trade officials be clear that trademark rights do not interfere with sound public health policies to promote competition and the greater use of generic drugs.

  5. Generic approvals for biologics are needed.

    Countries should be required to provide expedited regulatory methods for approval of generic versions of biologics.

Other Trademark Issues

As noted above, there are disputes in Canada regarding plain paper packaging of cigarettes and in Guatemala regarding World Health Organization (WHO) Guidelines for marketing of Infant Formula. Industry groups, sometimes represented by former USTR officials, claim that public health regulation of marketing runs afoul of GATT and NAFTA trademark provisions. For of a discussion of these and other issues, see our comments to the 1997 FTAA Business Forum in Belo Horizonte, which is on the Web at http://www.cptech.org/pharm/belopaper.html (no period). It is important that trade officials make it clear that trademark rights under trade agreements not be interpreted to prevent public health authorities from limiting or regulating marketing and packaging of products. To be silent of this issue while such disputes occur is not appropriate. Also, be advised that Carla Hills, a former USTR, has been making broad claims about NAFTA and GATT trademark rights on behalf of tobacco companies, and that Ms. Hills emphasizes her role in the negotiations over these treaties.

Parallel imports

Like the GATT/TRIPS, and unlike NAFTA, the treaty should allow parallel imports of patented pharmaceuticals and other products. The mechanism of parallel imports is an important way for consumers to avoid adverse price discrimination that the patent holder can implement by geographic area (see D.A. Malueg and M. Schwartz, "Parallel Imports, Demand Dispersion and International Price Discrimination", U.S. Department of Justice -- Antitrust Division, 1993). We also believe a broader global market for pharmaceutical products will lead to more efficient pricing decisions, with lower transaction costs.

As an example of current price discrimination, PHARMAC, a New Zealand government agency, reported this month that BMS insists on charging New Zealand consumers 30 percent more for the AIDS drug Videx (ddI) than it charges consumers in the United States. Sometimes the price differences are such that drugs are more expensive in the United States than elsewhere. In general, companies price products on the basis of local market conditions, but not necessarily upon the consumer's ability to pay. For example, Crixivan (indinavir) is sold at a higher price in South Africa than in the United States, despite the fact that the vast majority of South-African AIDS patients are very poor.

Obtaining competitive world prices is important for poor countries or for countries with a small internal market. Allowed in several countries, parallel imports of pharmaceuticals have shown to be effective in lowering drug prices. A study of the price of HIV drugs in the UK shows that parallel imports offer an average saving of 41% from the UK list price, and a 30% saving from the UK best contract price. The group of HIV drugs are among the most expensive drugs marketed to consumers (see http://www.cptech.org/pharma/sa/sa-10-97.html).

Recent decisions by Australia (music CDs), New Zealand (all goods except pharmaceuticals) and South Africa (pharmaceuticals) to permit parallel imports has made the issue of parallel imports an important trade issue. In our view, parallel imports are free trade, and efforts to limit parallel imports are protectionist. In Japan, some efforts by firms to limit parallel imports are considered criminal violations of antitrust laws. In general, with the rise of the Internet and global commerce, it is inappropriate to seek barriers to parallel imports. (See: http://www.cptech.org/pharm/sa/sa-10-97.html)

Compulsory licensing

Under GATT/TRIPS, member countries have the right to issue compulsory licenses on patents, subject to several safeguards and limitations. Under NAFTA, compulsory licensing is limited to cases resolved under antitrust laws. The proposed Multinational Agreement on Investments (MAI) would use the NAFTA approach.

It is our view that the NAFTA/MAI approach is too restrictive. Government should be allowed to use compulsory licensing when it is necessary to achieve public interests goals. In practice, the U.S. government and European countries do a significant amount of compulsory licensing. Much of this is done in the context of antitrust proceedings, such as the 1984 EC undertaking with IBM, the 1998 essential facilities case with Intel, the several recent FTC cases involving pharmaceuticals, biotechnology and software, and the recent Department of Justice case involving West Publishing. We also have compulsory licensing in the nuclear area, and compulsory licensing based upon public interest criteria for certain government funded inventions (see the U.S. Bayh-Dole Act, PL 96-517, as amended by PL 98-620).

New Burden Sharing Approaches

CPT has been urging trade officials and the FTAA Business Forum to adopt a different approach to trade disputes that involve health care. In general, we believe that in these disputes public health considerations should have primacy over commercial considerations, and that when it comes to health care research, the focus on the agreements should be on burden sharing rather than property rights per se.

In this burden sharing framework, countries would be asked to support minimum levels of health care research, and be given flexibility in the mechanisms to achieve those levels. Property rights such as patents or health registration data are one such mechanism, but so too would be direct government expenditures on research, such as the U.S. National Institutes of Health (NIH), or R&D reinvestment requirements, perhaps modeled on the R&D funding proposed by BMS for extension of the term of health registration data exclusivity.

Thank you for the opportunity to provide these comments. We ask for a meeting with the USTR staff to discuss these issues further.


James Love
Consumer Project on Technology
love@cptech.org http://www.cptech.org

* corrected for typos on July 31, 1998
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